Irvine Co. Will Lay Off 16% of Its Work Force : Building: Biggest O.C. landowner blames recession worsened by punitive credit climate, clamps on growth.
The Irvine Co., Orange County’s mammoth developer and landowner, announced plans Wednesday to dismiss about 16% of its work force--trimming its staff from 386 to 326 employees.
Most of the 60 terminated employees worked in the company’s land development group, which oversees the development of infrastructure--such as roads and sewer lines--on vacant property.
In a spirited memo to employees, the company blamed the layoff on “the bitter and painful reality of recession, exacerbated by a punitive real estate credit crunch and resistance (by government) to new growth.” The memo was signed by Executive Vice President William H. McFarland, Senior Vice President Gary H. Hunt and Vice Chairman John Galvin.
The company, which owns a sixth of the land in Orange County, is at its lowest staffing levels since the mid-1960s. At its height in 1985, the company had a staff of nearly 1,500 employees--a number that has since dwindled through a massive reorganization and numerous subsequent layoffs.
Before Wednesday, the company’s last major staff reduction came in November, 1990, when it downsized by 9.5% to 382 employees.
An industry expert who requested anonymity said the Irvine Co. staff cuts make a sad statement for the entire Orange County real estate market.
“The Irvine Co. has always set the pace,” he said. “How goes the Irvine Co., so goes the rest. This is not what the county needs. Everyone in real estate is trying to convince themselves that things are going to get better if they just hold on a little longer--then along comes this and bursts their bubble.”
Orange County’s premiere developer, the Irvine Co. designed and helped develop most of the residential areas in the city of Irvine, the Fashion Island and Tustin Marketplace shopping malls, and the Irvine Spectrum and Jamboree Center business centers. Its recent projects include the 9,400-acre Newport Coast and 1,740-acre Tustin Ranch residential developments.
Like all developers, the Irvine Co. has been forced to lower rents for its office, industrial and retail properties to attract tenants. But its undeveloped residential land has been hardest hit by the recession, said company spokeswoman Dawn McCormick.
“In this fiscal year, 1991-1992, we will have made only one residential land sale to a home builder, and we financed that one ourselves,” McCormick said. The builder, Standard Pacific, bought land last year in the exclusive Turtle Rock section of Irvine to build high-end homes.
“In better times, we would have 10 to 12 residential land sales in an average year,” McCormick said. “Even though sales should pick up in 1993, we anticipate that builders will buy in smaller increments.”
The company has taken aggressive steps in the past six months to unload both commercial and residential properties. Last summer it quietly began to market about 1,500 apartments in Tustin, Orange and Newport Beach as condominiums. And two weeks ago, the company gave exclusive listings to four competing brokerages to speed up the sale of undeveloped commercial real estate in the Irvine Spectrum. Previously, the company had tried to market the property through in-house personnel.
This latest cutback follows weeks of rumors that the company planned to lay off as many as 100 employees. “I heard all sorts of wild figures” from people outside the company, said Irvine Co. spokesman Larry Thomas. “At least we didn’t have to go that high.”
Thomas said that most employees were prepared for the announcement.
“There was an expectation of a reduction,” he said. “Virtually everyone in the company was aware that for the past couple of months the company has been taking a second look at some of its business plans.”
A cutback in the land development group--which is composed of three smaller divisions, Foothill Community Builders, Irvine Community Builders and Coastal Community Builders--indicates the company’s difficulty in selling undeveloped residential land. As have other developers, the Irvine Co. has been hurt by the national credit crunch that has made it almost impossible for builders to obtain financing.
“While the Irvine Co. is not a home builder, per se, we rely upon builders to purchase our land and undertake development consistent with our comprehensive master plans,” the memo said. “When builders can’t buy, it impacts us, our employees and the local economy.”
Land sales “that were in the distance were beginning to look even more distant,” McCormick said.
Last week, the company circulated the text of an unusually pessimistic speech given recently by Hunt--a move seen by some industry watchers as a signal of impending layoffs. In the speech, made to the Orange County Building Industry Assn., Hunt predicted that 1992 would be an even bleaker year economically than was 1991.
Wednesday’s fiery memo echoed the speech’s sentiment, charging that a solution to the recession “remains lost in the Byzantine world of Washington debate and political maneuvering.”
A broker whose firm handles some of the developer’s commercial properties said that the Irvine Co. was a bit slow to realize the staying power of the current recession.
“They didn’t think that the recession would go as long as it has, and they thought that having product when the market came back would be advantageous,” he said. “They kept building a year and a half longer than they should have.”
The 60 workers were summoned individually on Wednesday and told they were losing their jobs, and each was promised a severance package and job placement services, according to the memo.
Dwindling Work Force
The Irvine Co. has cut its work force by more than three-quarters since it reached peak employment of 1,492 in December, 1985. Dec. ‘85: 1,492 July ‘86: 1,183 July ‘87: 1,025 July ‘88: 399 July ‘89: 388 July ‘90: 417 July ‘91: 373 Jan. 22 ‘91: 386 Today: 326 Source: The Irvine Co.
